Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

GLD and SLV will all end in tears

|Includes: SPDR Gold Trust ETF (GLD), SLV

On July 16th 2009 J S Kim wrote am article on GLD and SLV which should have stopped all investment advisors in their tracks. It should have made them reconsider ever advising their clients to buy GLD or SLV. The article was headed Are GLD and SLV Legitimate Investment Vehicles? Here is a quote:

"I have maintained for a long time now, ever since I carefully read the GLD and SLV prospectuses, that any investor that buys the GLD and the SLV and believes that these two investment vehicles are as risk-free and as sound as purchasing physical gold and physical silver is highly delusional. I call the prospectuses of the GLD and the SLV “Alice in Wonderland prospectuses” because it is literally impossible to ascertain what information contained within them is fact or fiction. Of course, investment advisers that sell their clients the SLV and GLD depend upon their customers not reading the prospectuses, or perhaps even reading them, but not understanding them. Some may say that the word delusional is a harsh term, but a mere glance at the GLD and SLV prospectuses explains my use of this term. "



Kim goes on to say that all investors in these products are unsecured creditors. How can investment advisors tell their customers in one breath that they must invest some of their savings in Gold and Silver and in the next breath advise them to purchase GLD and SLV?

What gold does GLD really have?

It has 'baskets' of gold promises. Reg Howe is an unbiased gold market technician who analyzes exactly what is happening in the World of Gold. In his recent May 24th Commentary he says:

"The design of GLD is a distinct improvement upon the carry trade as a vehicle for blunting upward pressure on gold prices from rising investment demand. Gold moves in and out of GLD in "baskets" of 10,000 ounces created by "authorized participants." The list of authorized participants includes all the major bullion banks, who as noted appear free to create baskets with gold loaned or swapped to them by central banks and then to transfer those baskets to GLD in return for shares to be sold to investors.

In that event, unlike the gold carry trade, official gold is not fully surrendered to the international market by the intermediary bullion banks and subsequently transported to God only knows where. Rather, with GLD as the (presumably bona fide) purchaser from the intermediary bank, the gold moves to an identified vault subject to the jurisdiction and laws of the United Kingdom. The central banks, as before, can continue to count it in their gold reserves, but now with more practical justification since it also remains within the banking system and their effective control."



So if you own GLD (or SLV) you don’t own any of the Gold .

The onely way to own Gold is t own it physically, the second best way is to buy shares in a reputable audited Gold Funds that let you have your gold when you want it.


Disclosure: Long on physical gold and silver